Ondiflo is Using Blockchain to Revolutionize the Oil and Gas Industry
Today, in the oil and gas industry, if a truck needed to carry 130 barrels of water from one location to another, representatives from both sides would have to sign off on the 130-barrel quantity, the start location, and end location—along with the time and mileage—just to start the commercial payment process from buyers to suppliers. It’s an excessive number of checks and balances, given that increasingly sophisticated equipment, such as tank gauges, GPS, or mobile apps, stored immutably on a blockchain, can directly provide the same information without any human interaction.
“The maturing of blockchain technology presents a unique opportunity to create shared benefits for operators and suppliers, by reducing the need for human verification and reconciliation,” says Rana Basu, the Co-Founder and COO of Ondiflo, a Houston, Texas-based startup that leverages senor data and blockchain technology to fully automate the order to cash process for Field Services in the oil and gas industry—that is, it automates conversations between humans, devices (IoTs), and business systems in the oil field.
For example, Basu says, by using blockchain to provide visibility to tank levels and locations, operators can provide truckers with the ability to better manage dispatch and scheduling. Also, by providing transparency to all movements, the trucker provides the operator with the benefit of planning and risk avoidance.
But while the oil and gas industry has a great history of collaboration on engineering and technology and is the source of many pioneering inventions, it is also highly regulated, under significant competitive pressures, and capital intensive, which has resulted in the creation of barriers to the sharing of information at an industry level, Basu says. That’s why he and his Co-Founder Jean-Pierre Foehn decided to start Ondiflo, with the goal of delivering the benefits of IOTs, machine learning, and blockchain technology.
We recently spoke to Basu about trends in the oil and gas industry.
What are you currently working on?
We have completed our first large scale pilot with five companies in East Texas, including BP as the operator and three trucking suppliers. With over 11,000 water hauling truck trips automated on the Ondiflo platform, we have learnt an incredible amount of details on each of the areas of adoption. For example, we concluded that some drivers should move from an hourly pay to a per job rate. The impact on the business was significant, from a median four to five trips per shift to almost six trips per shift. We are now working on scaling up and deploying across a much larger footprint, based on those learnings.
What trends are you seeing in the oil and gas industry?
Competitive pressure in the oil and gas sector has led to consolidations on both the operators and suppliers’ side. Moreover, in the last twenty years the industry has embarked on a digitization journey. Yet, there is still an absence of standards accepted and used on the commercial side of operations, which prevents realizing benefits across companies and, sometimes, even within different parts of a same company. Therefore, there is now a growing chorus echoing the need for industry-wide efforts to make the next leap in cost reduction.
The regulatory aspect is creating both new opportunities and threats. For example, in the Permian basin across Texas and New Mexico, produced water is now owned and titled to the operator. Thus, such title and its associated value and liabilities can be transferred. California recently proposed blocking all new drilling permits within a wide radius of any construction (not just a dwelling). Thus, companies are seeking specialized capabilities to manage these regulatory changes and compliance.
Environmental stewardship and HSE commitments are rising to the forefront of strategic decisions. We are witnessing oil majors becoming large participants in diversifying to biofuels, wind, solar and other renewable resources. The historical perception of our industry is not in alignment with these recent efforts, and companies are taking big steps to increase their environmental commitments and sharing the provenance of their efforts and its results for the public.
How are you creating products that address your customer’s needs?
We are creating a capability for sharing between the largest super-majors, through majors, independents, NOCs, small specialized producers all the way to large, medium and small suppliers. Think of the needs of a BP or Exxon versus those of a small family-owned trucking company in rural Texas.
In our first pilot we worked with a large, medium and smaller trucking company and were able to see the difference in the needs, based on scale. There were some common threads, such as sensitivity to operating cost and regulatory and compliance needs. Most of the companies are now fully open to cloud native solutions, but do not want to lose their investments in their current IT stack as far as possible. AWS is helping Ondiflo migrate from Azure to AWS to open the offering to parties on AWS. The savings in the cost of peering and the costs of data egress across clouds or zones within the AWS regions are potentially significant for some companies. Finally, there are hundreds of companies just in the United States and the ability to scale globally across different use cases is important to most of the larger entities on the platform. Partnering with AWS allows us to address the trepidation on part of the CIO / CTO, especially at the medium to larger organizations on the ability to scale and pace to deploy.
What is the biggest challenge that you’ve faced in your role at Ondiflo so far?
Our main challenge, as for so many startups, is to raise capital to fulfill the promise of the concept. The decision cycles in the oil and gas industry are long, and during these cycles the requirements list increases as time passes. Additionally, the benefit of the platform lies in bringing together operators and suppliers. Building each coalition of companies also takes time, as they may each be in different points on their digitization journey and need less or more support, which in itself requires capital.
We were able to bootstrap and run very lean to get started. We were incubated by two mature companies. When we moved out of incubation, we were able to get most existing shareholders and management to align on the length of time and support the fledgling startup as its wobbly feet got steadier. Getting the BP contract and their three suppliers on board gave everyone a sense of confidence that the vision did have legs to stand on. Overcoming the need for time was made possible by getting customers satisfied, which in turn makes investors feel secure as the technology develops into stability and revenue.
What’s one unique thing that most people don’t know about what your company does?
Blockchain was popularized by cryptocurrencies such as Bitcoin and Ether. There was tremendous hype about decentralization and crypto future in 2017-18. What we often need to clarify is that we are a business process automation solution that uses blockchain for a small portion of our code, the part that blockchain does best – recording events immutably for legal enforceability. We are a private permissioned network and most of our R&D is in the data science to make all conversations between devices, systems and users efficient and riskless. We have no need for cryptocurrencies.
What do you wish you knew when you were starting your company?
The process for raising capital for a software on emerging technologies is quite complex and opaque. We may have served our customers and the industry better by first raising the capital and then expanding rapidly. Additionally, we sought to take a consortium building approach within the industry in the early days. And that time may have been better spent working on direct projects as moving the larger industry bodies to take action is tricky, time consuming and consumes incredible amounts of energy and effort.